Tim Geithner made a splash at his confirmation hiring by stating that President Obama believes that China is a currency manipulator. This is a strong change in policy and will create significant tension in the in Sino-American relationships.
First, the legal definition of being classified a currency manipulation is very specific and China has not met the definition. It is unfair to characterize China with this label at this time. Second, as the biggest buyer of US Treasuries there is no reason to make the Chinese upset at the when we will be issuing over $1.2 trillion in debt over this fiscal year. Third, China needs to be further integrated in the global not pulled into a defensive view. Fourth, the currency changes do not suggest manipulation on a multilateral basis. The yuan has strengthened versus many Asian currencies. Fifth, this is the type of rhetoric that can lead to trade wars.
Now, we do know that the yuan is not a flexible exchange rate and there has been evidence that currrency is undervalued by a number of economist. China has built up a war chest of over $2 trillion in foreign exchange because of their efforts to depress the currency. More work has to be done to refine the definition of manipulation and the monitoring of currency developments by Treasury. See the recent IIE report. Neverthless, is this the time and place for a manipulation discussion? We should expect better politics from a potential Treasury secretary.
First, the legal definition of being classified a currency manipulation is very specific and China has not met the definition. It is unfair to characterize China with this label at this time. Second, as the biggest buyer of US Treasuries there is no reason to make the Chinese upset at the when we will be issuing over $1.2 trillion in debt over this fiscal year. Third, China needs to be further integrated in the global not pulled into a defensive view. Fourth, the currency changes do not suggest manipulation on a multilateral basis. The yuan has strengthened versus many Asian currencies. Fifth, this is the type of rhetoric that can lead to trade wars.
Now, we do know that the yuan is not a flexible exchange rate and there has been evidence that currrency is undervalued by a number of economist. China has built up a war chest of over $2 trillion in foreign exchange because of their efforts to depress the currency. More work has to be done to refine the definition of manipulation and the monitoring of currency developments by Treasury. See the recent IIE report. Neverthless, is this the time and place for a manipulation discussion? We should expect better politics from a potential Treasury secretary.
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